Case 1

ABINGTON-HILL TOYS, INC.

PART I – INTRODUCTION

Due to the death of the last original founder, Lewis Hill, the financial condition was deteriorating under Hill’s last-year control. Owners of the firm decided to find a capable manager to improve the firm’s financial condition and reshape the company as well. Then, Vernon Albright was selected as the new president of this company. Lately, David Hartly became the comptroller assistant and was responsible to analyzing the firm’s financial conditions.

PART II – METHODOLOGY

A. Current Ratio: Current Assets Current Liabilities

B. Acid-Test Ratio: Current Assets – Inventory Current Liabilities

C. Average Collection Period: Accounts receivable (Annual Credit Sales / 365 days)

D. Inventory Turnover: Cost of Goods Sold Inventory

E. Fixed Asset Turnover: Sales Net Fixed Assets

F. Total Assets Turnover: Sales Total Assets

G. Debt Ratio: Total Debt Total Assets

H. Times Interest Earned : Operating Profit Interest Expense

I. Gross Profit Margin: Gross Profit Revenue

J. Net Profit Margin: Net Income Revenue

K. Return on Total Assets: EBIT Total Assets

L. Return on Net Worth: Net Income Shareholder’s Equity

M. Z-Score: Z = 1.2X1 + 1.4X2 + 3.3X3 +0.6X4 +1.0X5 X1= Working Capital/ Total Assets X2= Retained Earnings/ Total Assets X3= EBIT/ Total Assets X4= Market Value of Preferred and Common Stock/ Total Liabilities X5= Sales/ Total Assets

PART III - SOLUTION

A. Current Ratio: 280,000 / 290,000 = 0.966

B. Acid-Test Ratio: (280,000 – 150,000) / 290,000 = 0.448

C. Average Collection Period: 120,000 / (720,000 / 365) = 60.833